More sophisticated procurement organizations, and the consultants that work with them, are fully aware that the centralization vs. decentralization argument in procurement is more of a myth than anything else – at least for companies that are further along the bell curve. Indeed, there is not a “singular path to centralization or decentralization” that top performers follow. Rather, there are periods of both centralization trending and devolution that ultimately lead to a hybrid structure that should, theoretically, bring the best elements of both structures to the table.

Still, having made this point, it is critical to first understand the arguments in favor of centralization and decentralization before getting to hybrid scenarios – as well as the underlying skills, processes, governance structure and technology that can support different approaches. Earlier this year, my colleague, Peter Smith, penned a very thoughtful paper exploring the age-old concept of centralization and decentralization with a modern twist and set of observations and recommendations: Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models.

In the coming weeks on Spend Matters, we’ll take a look at some of the highlights and observations that Peter makes in his work, starting first today with what he aims to achieve with his effort. We’ll also include additional observations and commentary as we explore some of the elements of his analysis in detail.

Framing the Issue

To get started, Peter frames his argument: “[T]his briefing paper [considers] … some fundamental issues for procurement … The first relates to how the procurement function is structured; in particular, the balance between centralized and decentralized organizational models. The second and related issue is whether the procurement function devolves power, or tries to hold it within the function.”

Peter then suggests that, “These issues are connected because the whole reason for centralizing procurement is usually in order to concentrate power and authority within the function. On the other hand, more structurally decentralized procurement organizations generally tend also to devolve power, whether that is to procurement staff operating at that devolved level, or to other users.”